We are maintaining our Neutral recommendation on
Kinross Gold Corporation
). The company's first-quarter 2012 adjusted earnings (excluding
one time items) of 18 cents a share missed the Zacks Consensus
Estimate of 21 cents. Revenues jumped 11% year over year to $1.04
billion, missing the Zacks Consensus Estimate of $1.12 billion.
Gold production decreased during the quarter by 6% to 604,247 gold
equivalent ounces. The decrease was due to an expected decline in
grades at Kupol along with an increased output of lower-grade
stockpile ore at La Coipa, and low production at Tasiast.
Also, production cost per gold equivalent ounce was $742 in the
quarter versus $545 in the prior-year quarter. However, a 24% jump
in selling price of gold helped revenues climb upwards despite
BARRICK GOLD CP (ABX): Free Stock Analysis
KINROSS GOLD (KGC): Free Stock Analysis Report
NEWMONT MINING (NEM): Free Stock Analysis
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The company is on track to meet its production targets for 2012. It
expects to produce 2.6 - 2.8 million attributable gold equivalent
ounces at an average cost of sales of $670 - $715 per gold
Kinross is expected to reap the benefits of rising gold prices
moving forward as it did in the first quarter since it has cleared
its hedge book and enjoys full leverage to gold prices. In
addition, the company possesses the Tasiast gold deposit which has
20 million ounces of mineral resource base under its jurisdiction.
Kinross expects this mine to become productive from 2015 and
provide more value to shareholders.
Also, Kinross has streamlined its capital expenditure program,
focusing on its priorities and not going overboard in its
expansionary moves. The company has decided to incur capital
expenditure out of the capital available with it, enabling it to
maintain its investment grade rating and also return cash to
However, Kinross may see some difficult times in the near-term due
to increasing cash costs and falling production levels at some of
its existing operations. In addition, macroeconomic issues could
weaken the demand for gold. For instance, India, a major consumer
of the world's gold production, recently saw a slowdown in gold
consumption due to a sluggish economy.
Moreover, Kinross' current below-average reserve base is a concern,
as it will compel the company to make acquisitions or scout for
exploration projects in a bid to replace reserves. These measures
might give rise to integration risk. Also, the company is still
unsure whether it will proceed with the Fruta del Norte project as
it is still negotiating with the Ecuadorian government. In case
Kinross is unable to strike a favorable deal with the government,
its growth prospects might take a hit.
Kinross, which competes with
Barrick Gold Corporation
Newmont Mining Corp.
), retains a Zacks #3 Rank, indicating a short-term Hold